Address Long-Term Spending, Harvard Profs. Say

As the national debate over the 2011 federal budget stretches into its sixth month, two Harvard economists called for U.S. lawmakers to tackle long-term spending reforms—including changes to entitlement programs such as Social Security, Medicare, and Medicaid—in order to regain control over the ballooning federal deficit.

Economics Professor N. Gregory Mankiw, who chaired former President George W. Bush’s Council of Economic Advisers from 2003 to 2005, criticized Obama’s initial 2011 budget proposal for not endorsing the suggestions of the bipartisan Commission on Fiscal Responsibility and Reform to increase the eligibility age for Social Security payments and raise taxes.

“The Commission’s proposal is on the right path,” Mankiw said. “Obama’s budget is pretty much on the wrong path.”

The House Republican budget proposal—which included over 60 billion dollars in cuts to non-mandatory government spending—was shot down by the Democrat-controlled Senate on Wednesday. Mankiw, however, described the proposal “more symbolic than anything else.”

Although Director of Undergraduate Studies Jeffrey A. Miron expressed support for proposed cuts to federally-funded programs such as NASA, he agreed with Mankiw that the measures do not go far enough. According to Miron, these proposals are “almost irrelevant” if Medicare and Medicaid are not addressed.

“Such a huge fraction of the problem is Medicare and Medicaid, so unless you’re proposing cuts to those it’s almost irrelevant,” he said. “Everything else is basically rounding error.”

While the House Republicans proposed severe cuts to discretionary spending totaling $61 billion, the projected budTget gap for this year is $1.6 trillion.

Even though Senate Majority leader Harry Reid indicated that rejection of the Republican proposal paves the way for negotiations about long-term fiscal sustainability, it is unclear how long it will take for major reforms to be drafted and passed through Congress.

Professor Linda J. Bilmes, Senior Lecturer of Public Policy at the Harvard Kennedy School, teaches courses in budgeting and public finance. In an e-mail yesterday, Bilmes threw her support behind the President and warned of the dangers of significant fiscal austerity soon after the financial crisis.

“The country needs a short-term plan to help the economy rebound and a long-term plan to address the imbalance between revenues and expenditures,” she wrote. “Right now we should be investing in the economy, particularly in helping states and cities which provide basic services.”

While the President typically submits a budget for Congressional approval, this is the first time since 1974 that the budget failed to pass the House in time for the beginning of the fiscal year.

In order to keep government operations running, Congress has implemented temporary financing measures, the third of which will expire on March 18.

“Having this budget deficit and looming problems is a little bit like having termites in your house,” Mankiw said. “It’s not like we have to do it today, but the longer we prolong it, the bigger the problem it becomes.”

—Julia L. Ryan contributed reporting to this story.

—Staff Writer Kevin J. Wu can be reached at kwu@college.harvard.edu.